The cost of insurance claims from natural disasters and a shortage of tradespeople to fix the damage they wreak are combining to depress margins at Suncorp.
Shares in the Brisbane-based insurer dropped more than 10 per cent after Monday's announcement that it expects a drop in underlying insurance trading ratio due to the continued cost of settling natural disaster claims in NSW and Queensland.
The warning also dragged down rival insurers IAG and QBE, which lost 3.1 per cent and 4.7 per cent respectively. Suncorp recovered slightly to close $1.28 lower at $11.77.
Suncorp said its underlying insurance trading ratio for the six months to December 31 would be about 10 per cent, down from 12.8 per cent for the prior corresponding period.
The insurer is still settling claims related to events including Cyclone Marcia in March and April's east cost low, which brought damaging winds, rain and hail.
"When you put that together with increased volumes of construction of residential, you end up with very low supply and as a result the builders have got an amazing level of leverage for doing fairly straightforward repairs," chief executive Michael Cameron said.
"I suspect more and more do-it-yourself people working on their homes also leads to increased levels of flooding and electrical problems."
Morningstar analyst David Ellis said the easiest thing would be to assume Mr Cameron was trying to reset expectations ahead of the first half-year results, but added that Suncorp's explanation appeared sound.
"With hindsight, you could say these should have been expected," Mr Ellis said.
"There were some hints of these things and they weren't called out."
Suncorp, which in August reported a full year profit of $1.13 billion despite paying out $1.07 billion in natural disaster claims, has raised some premiums to help offset the increased number and cost of weather-related claims.
It expects to announce an increase in gross written premium when it reports in February, but declined to give any profit guidance.
Mr Ellis said he expected a modest second-half improvement in underlying insurance trading ratio and a full year result of about 11 per cent.
"It's not a disaster. It's just one half with a larger amount of claims that are more expensive to complete," Mr Ellis said.
"The business is going along OK."
Mr Cameron, who took over from Patrick Snowball on October 1, said Suncorp maintained its underlying insurance trading ratio target of 12 per cent but declined to say whether that constituted a firm commitment or an aspiration.
"He danced around it a bit," Mr Ellis said.
Suncorp managed 14.7 per cent for 2014/15, lifting net profit 55 per cent and paying a special dividend to shareholders.
Investors will now be watching for signs of similar news from rival insurers.
"If it's happening for Suncorp, it's got to be happening for IAG," Mr Ellis said.
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